EMERGING MARKETS BACK IN VOGUE AS YIELD-HUNGRY INVESTORS FEEL THE SQUEEZE

La Presse Business (Tunisia) - - CONTENTS - By Elaine Moore - Lon­don Joe Ren­ni­son - NEW YORK

Mo­ney is being pou­red into emerging markets at re­cord pace, as ne­ga­tive in­ter­est rates across the de­ve­lo­ped world lure investors to­wards ris­kier as­sets in what one tra­der has dub­bed “a buying craze”. In­vest­ment into emerging mar­ket equi­ty funds hit a 58-week high this week as investors sear­ched for po­si­tive re­turns, with bor­ro­wing costs in de­ve­lo­ping eco­no­mies fal­ling to th­ree-year lows and cur­ren­cies re­boun­ding to a year high. Eco­no­mists say un­pre­ce­den­ted le­vels of cen­tral bank ea­sing in the UK, Ja­pan and Eu­rope are en­cou­ra­ging investors to ignore the risks of com­mit­ting mo­ney to some of the world’s least stable eco­no­mies. “The dri­ver be­hind this in­tense de­mand for EM has no­thing to do with EM,” said Mi­chael Hart­nett, Bank of Ame­ri­ca Mer­rill Lynch’s chief in­vest­ment stra­te­gist. “There’s one thing that emerging markets have that eve­ryone wants right now and it’s not raw ma­te­rials or cheap la­bour - it’s yield. When you have ne­ga­tive in­ter­est rates in Eu­rope and Ja­pan, and ze­ro rates eve­ryw­here else, the po­li­tics and eco­no­mics of these coun­tries be­comes ir­re­le­vant.” Across emerging markets, equi­ty funds saw in­flows of $5.1bn du­ring the week en­ding Au­gust 17, the se­venth straight week of in­flows, ac­cor­ding to da­ta from EPFR. Over the same se­ven weeks, a re­cord $20bn was in­ves­ted in emerging mar­ket bonds, with investors ta­king mo­ney out of US and Eu­ro­pean bonds in fa­vour of the ris­kier as­sets. JPMor­gan’s in­dex of emerging mar­ket cur­ren­cies has clim­bed 10 per cent since Ja­nua­ry, dri­ven by a sharp ap­pre­cia­tion in the South Afri­can rand, in spite of po­li­ti­cal un­rest ahead of lo­cal elections this month. Ex­pec­ta­tions that the Fe­de­ral Re­serve will re­main on the po­li­cy si­de­lines have wei­ghed on the US dol­lar and bol­ste­red oil prices while the UK’s de­ci­sion to leave the EU and the Bank of En­gland’s in­ter­est rate cut and as­set buying have pro­vi­ded a fur­ther boost to EM as­sets. “At the start of this year, emerging mar­ket as­sets had rea­ched pa­riah sta­tus; now they are back in vogue in a ma­jor way,” said Bha­nu Ba­we­ja, head of emerging markets cross as­set stra­te­gy at UBS. “The wor­ry is that if you get investors buying in­dis­cri­mi­na­te­ly - as they are now - then they can change di­rec­tion

fast.”■ back again just as

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